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D Fry Market Outlook 12 01 2007

It looks like a short-squeeze to me. Going into the second week of the year marked by some tax selling in equities and a commodity price collapse many short-sellers thought a correction was at hand. But with the continued reality of extensive M&A activity [$215B raised for private equity funds 2006], $2T in hedge funds, stock buybacks [an estimated $600B reduction in available shares], a world awash in liquidity ["cash" my friends, courtesy of generous central bankers], and recycling nearly $1T in petrodollars back into financial assets—well, only the Three Stooges would be short.

Buyers have repeatedly stormed the markets like pre-holiday midnight shoppers at Wal-Mart Stores Inc. (NYSE:WMT) when they find the news to suit their obvious bias. New product news from Apple Computer Inc. (NASDAQ:AAPL), followed by excellent earnings from Alcoa Inc. (NYSE:AA) and Genentech Inc. (DNA), a stronger dollar not to mention falling energy prices opened the doors to a buyer's stampede.

Just get out of the way or you'll end up like Curly!

And, while advance/decline data has been wishy-washy, not so today.

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At the beginning of 2006, the conventional wisdom of Wall Street analysts was to sell small and mid-cap sectors and rotate to big caps. They were wrong initially as the former rallied until May and it wasn't until early August that big cap sectors took the lead, but did so in a big way. In 2007 the mantra has been, "get out of energy and buy tech." They may be right this time although tech seems resting on just a couple of names like Apple Computer Inc. (AAPL) and Google Inc. (NASDAQ:GOOG). For tech to really get going, semi's have to join the party. Otherwise it's just too narrow an advance.

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Tech's are leading the way higher no doubt as commodity sectors sell off and other sectors try to keep pace.

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Meanwhile, overseas conditions are volatile but price corrections seem relatively shallow thus far.

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The bulls are still in control and have weathered what appeared to be pent-up early January tax selling. Lower energy prices are a good thing and, as so many have said, act as a tax cut should they hold at lower levels.

The switch to tech seems to be gaining believers and traction. While I'd like to see more positive participation from HOLDRS Semiconductors (NYSEARCA:SMH), you can't have the bases loaded all the time.

Have a pleasant evening.

Disclaimer: Among other issues, the ETF Digest maintains positions in: iShares Goldman Sachs Network Index Fund (NYSEARCA:IGN), First Trust DJ Internet Index ETF (NYSEARCA:FDN), NASDAQ 100 Trust Shares ETF (QQQQ), S&P 500 Index (NYSEARCA:SPY), Claymore Macroshares Oil Down (DCR), MidCap SPDRs ETF (NYSEARCA:MDY), PowerShares Zacks Small Cap Portfolio (PZJ), PowerShares Zacks Microcap Index (NYSEARCA:PZI), streetTRACKS Gold Trust ETF (NYSEARCA:GLD), iShares MSCI Australia Index Fund (NYSEARCA:EWA), (NYSEARCA:INP), iShares S&P Latin America 40 Index Fund (NYSEARCA:ILF), iShares MSCI Emerging Markets ETF (NYSEARCA:EEM) and iShares S&P Europe 350 (NYSEARCA:IEV).

Source: David Fry's Daily Market Outlook